My 2012 Predictions

It is the time of the year when New Years Resolutions are made. Usually these are personal goals like losing weight, exercising more, stop smoking, spend more time with family. Business goals are not predictions, they require plans and action to make things happen. As we head back to our usual routines in the new year we will set some of each of these resolutions.

But 2012 is an important national election year in the United States and the stakes are high for the candidates and for our nation. Our economy is in the ditch. We lack consensus about the road to travel.

I think the path forward is becoming more clear to us but choosing it requires us to stand up to our politicians telling them that they work for us and this is the way we want things to work—-and here are the results we expect them to achieve—or else.

We don’t know what the future holds for us in 2012, but here is my list of ten things I think are possible:

Perfect Regulatory Storm leads to 2012 Public Backlash. The cumulative impact of new USEPA MACT, Cross State, and Once Thru Cooling regulations on fossil fuels hits home, rising utility rates loom as above market renewable energy projects come online, growing reliability worries as critical power generation resources are targeted for forced closure, and slow economic growth combine to create a public backlash against government policies at the Federal and State level that are seen as hurting economic recovery, energy reliability and job growth.

High Global Oil Price Volatility Drives Demand for Domestic Energy Production. Global economic weakness, Euro zone financial crises and the potential for more conflicts in the Middle East and with Iran conspire to keep oil prices above $100 per barrel with regular higher spikes. Pressure grows for the US government to get out of the way of domestic energy production for energy security purposes. Modest permit growth in the Gulf of Mexico and elsewhere are seen as token by proponents and sacrilege by environmentalists.

Unconventional Oil & Gas is Our ‘Energy Spring’. The growth of unconventional oil and gas is seen as America’s strategic advantage and best line of energy security defense. But it gets worse for opponents of horizontal drilling and hydraulic fracturing as West Virginia’s legislature adopts new drilling rules that assure its role filling the economic gap left by the EPA war on coal. Growth in low cost natural gas creates slow but growing movement by chemicals, plastics, steel and other manufacturing industries dependent upon feedstock fuels to bring manufacturing and jobs home from abroad. But they face a barrage of hostile regulations that threatens to spoil the homecoming. This enrages business and labor who find common cause in this ‘energy spring’ bringing a rebirth of manufacturing and with it good paying union jobs in the Midwest and other markets where shale gas E&P is prominent.

Keystone XL Pipeline Tipping Point. The President resists making a decision on the Keystone XL pipeline project to bring Canadian tar sands and shale oil south to the Gulf coast to take advantage of the world’s largest refining capacity. Occupy Keystone protesters loudly protest the project and capture headlines. The President fears his environmental base supporters will abandon him, but labor support for the project builds because of the 20,000 jobs the project represents. In a rare coalition of Labor, Industry and Republicans, the House of Representatives votes to approve the Keystone XL project by attaching it to every must pass bill and pressure builds on Senate Democrats to go along—or else. A veto-proof majority in the Senate votes to approve the project in a package that also includes a full 12 month extension of the payroll tax cut and unemployment insurance.

It’s About Jobs and the Economy, Stupid. A funny thing happens after the Keystone XL decision, the animus between labor eager for job creation and environmentalists seeing their promised land of green energy policies slip away breaks out in full force. The President is caught in a place he desperately wanted to avoid—being forced to choose between two constituencies. He doubles down on his calls for taxing the 1% hoping to change the subject and reunite the coalition that elected him. But then another financial crisis hits overexposed banks in the EU causing global stock markets to fall and with sectarian violence in Iraq escalating rapidly oil prices up rise sharply, gasoline prices skyrocketing to near $5 per gallon and the Fed scrambling to contain the economic damage. Calls grow to expand domestic energy production in the US but environmental groups scream and the President dithers offering to release more oil from the Strategic Petroleum Reserve instead. Business, labor and many states see their dreams for a rebirth of manufacturing, job creation and tax revenue being put at the mercy of uncontrollable international events. After lobbying the White House hard for action and getting nowhere, business and labor come together in a coalition with the Republicans in the House to sponsor the American Economic and Energy Security Act of 2012 which prohibits the US EPA or any Federal agency from interfering with state decisions on permitting E&P activities within the state for unconventional oil and gas development, suspends EPA rules including the Cross State Air Rule, the Utility MACT rule and the Once thru Cooling Rule until completion of a report to Congress on setting uniform standards for assessing the economic impact of all Federal rules, and requires specific Congressional approval of any new rule or regulation with a cost impact of more than $100 million per year. Business and Labor work Senate Democrats the same way they did for the Keystone XL decision. The bill passes with the same veto proof majority, the President vetoes it anyway and the bill is passed over his veto.

India and EU join US in Solar Dumping Charges against China. China’s strategy of increasing subsidies and supports for PV panel production in an effort to increase domestic demand and thus assure a soft landing for its export potential backfires and more manufacturers pour into the market to build PV panels. Despite expected growth in China PV installations to 3GW in 2012, anti-dumping complaints grow as India and the EU join the US complaint.

Solar PV Margins and Prices Collapse and China Responds by Forcing Consolidation of PV Producers. The new year announcement that Foxconn Technology Group will begin producing solar power modules by May 2012 in China’s Jiangsu province added a new threat to the falling margins for Chinese manufacturers. The Chinese government begins forcing smaller weaker polysilicon companies to merge or go out of business to rationalize PV production and maintain export growth by increasing PV efficiencies while lowering costs. This strategy exacerbated the problems of PV producers around the world especially in the EU where a weakening euro squeezes manufacturers facing higher materials costs in a market of falling PV prices. Global PV consolidation and fall-out of weaker players accelerates in an effort to reduce PV supply glut and stabilize prices. But with smaller subsidies PV prices continue to fall.

The Biggest Customer Benefit from Smart Meter Deployment is Democratizing the Grid. Global smart meter deployment is forecast to triple by 2016 according to IHS iSuppli to 62 million units. That surge is brought on by rapid market penetration in the EU and Asian markets even as US markets reach saturation. The expected result is more than a doubling of forecast global revenue from semiconductor manufacturing. Expect to see a quickening pace of grid instrumentation and control that enables customer aggregation to gain energy efficiency and demand response benefits, microgrid development to secure benefits of net metering from combined heat and power projects and rooftop solar in new industrial projects, and speed the transformation of utility business models from central station generation and energy delivery to distributed energy resource management. Global smart meter deployments force agreement on interoperability standards which rapidly emerge or are imposed by market leading manufacturers giving customers more plug and play choices for controlling energy use.

From Smart Meters to a Secure Flexible Modular Grid. Adding smarter technology to the 100 year old power grid structure in place today in North America is a good start but is not sufficient for the vibrant growing economy America and the rest of the world hopes for in our future. We see the outlines of that modular grid future emerging today. As we rebuild America’s industrial manufacturing base and energy infrastructure the power grid has got to change with it. Again the iSuppli forecast suggests that semiconductor revenue growth is likely to result in a spurt of adaptive innovation between 2012 and 2016 to set the stage for this growth. The reason is the expected growth in logic integrated circuits (ICs) for precise measurement and communications added to smart meters and microcontrollers, digital signal processors and microprocessors to extend the grid instrumentation. iSuppli says greater use of system on chip (SOC) to integrate the functionality of the product into a single device will produce the biggest bang for the buck. Adding digital grid instrumentation makes possible a wider range of predictive analytics for grid performance, outage management, distribution automation and congestion management.

Restoring America’s Strategic Competitiveness requires focus on the Big Three E’s. Our goal is not to use less energy, it is to use energy wisely, productively and, yes, sustainably to achieve our strategic economic and security goals. The Three Big E’s: economy, environment and energy are an inseparable part of our national, natural and personal well being. The big mistake in our national environmental and energy policies is that they fail to balance the natural policy goals with our national economic and global strategic competitiveness imperatives and the reality that we need to make a living to be sustainable. We need balance between the three big E’s to achieve responsible sustainable results. We lack that balance today, getting it back is essential for a good 2012 and beyond.